General Conditions: Information Delivery, Solicitation Ban, and Resale Limits

These three conditions travel together because they solve the same problem from different angles: what a purchaser learns before buying, how the issuer can find purchasers in the first place, and what a purchaser can do with the securities afterward.

When Must an Issuer Deliver Written Information to a Purchaser?

• Only when selling under the no-solicitation private placement exemption to a purchaser who is not an accredited investor.
• Not required when selling under the small-offering exemption, or when selling to an accredited investor under any Regulation D exemption.
• A note to the rule adds a practice point rather than a duty. When the issuer does furnish that information to a purchaser who is not accredited, it should consider giving the same information to the accredited investors in that offering too.
• The reason the note gives is the antifraud provisions. The issuer is not required to do it, and the point has nothing to attach to where no information is furnished at all.
• Where the issuer is not an Exchange Act reporting company, the level of financial-statement detail required scales with the size of the offering, at a $20,000,000 threshold. A reporting company furnishes its annual report and periodic filings instead, with no dollar split.
• A separate right, with a wider reach: the issuer must give every purchaser in a no-solicitation private placement, accredited or not, the chance to ask questions and get answers about the terms of the offering, and to obtain any further information the issuer has, or can get without unreasonable effort or expense, to verify what it furnished.

Exam Tip: Gotchas

• The information-delivery duty attaches to the individual sale, not to the offering as a whole. A single no-solicitation private placement can require delivery to one non-accredited purchaser and not to another purchaser in that same offering who is accredited.
• "Should consider" is not "must." The note asks the issuer to weigh sharing the same information with accredited investors. An answer that turns it into a requirement is wrong.

Where Does the General Solicitation Ban Apply?

Regulation D bans general solicitation and general advertising for an offering, except through the small-offering exemption's state-law paths or the accredited-only, general-solicitation exemption.

What Happens to Securities After a Regulation D Sale?

Except for securities sold under one of the small-offering exemption's state-law paths, securities acquired in a Regulation D transaction are restricted securities and cannot be resold without registration or an available exemption.

The issuer must exercise reasonable care that purchasers are not buying with a view toward distributing the securities themselves. That care can be shown through:

• A reasonable inquiry into the purchaser's investment intent
• Written disclosure that the securities are unregistered and resale-restricted
• A restrictive legend on the certificate or document evidencing the securities

Those three are not the only ways to show that care. Other issuer actions can do it too.

What Should You Check on Exam Day?

• Confirm the information-delivery duty triggers only for a non-accredited purchaser buying under the no-solicitation private placement exemption, and read the accredited-investor point as something the issuer should consider rather than a second delivery duty.
• Do not narrow the ask-questions right the same way. It runs to every purchaser in that offering, accredited or not.
• Remember financial-statement detail scales up at the $20,000,000 offering-size threshold when the issuer is not a reporting company.
• Match a general solicitation question to whether it falls under one of the two exemptions that expressly permit it.
• Confirm Regulation D securities are restricted securities, and treat the three named ways of showing reasonable care as examples rather than the only ones.